WPP plc

Thank you very much, and welcome everyone to WPP's first hard results. I'm here in London with Joanne Wilson, our CFO, at her first set of results, and Tom Waldron, who leads our investor relations team. So please do read the statement on page two of the presentation. It's important. Now, in terms of the presentation on page three, I'll cover the highlights for the year. Then Joanne will take us through the financial performance, and I'll come back at the end on our strategic progress and the opportunities ahead of us before we take everyone's question. To turn into the highlights on page four, I'd say we had resilient growth in the first half overall, with growth of 2%. It's important to understand the breakdown of this growth so we can evaluate really what happened. To start with, we did see growth slow from 2.9% in Q1 to 1.3% in Q2. And the world outside the U.S. represents around 63% of our business. We actually saw growth accelerate from 3.2% in the first quarter to 5% in the second quarter. And this reflected a pretty strong performance in the second quarter in the U.K. In Germany, 6.6%. We saw recovery in China from negative to 4.8%, having been down 13% in the first quarter. All of this suggests actually a pretty robust client spending environment. Similarly, we saw continued growth in Group M at 6.1% in both Q1 and Q2 globally, reflecting strong client spending. And our public relations businesses grew perhaps somewhat more slowly, but actually fairly consistently at around 2% in both the first and second quarter. Ogilvy in particular had a strong performance in the first half on the back of good client wins at the end of last year, and really a recovery for that business after perhaps a couple of disappointing years. The part of our business where we have seen a shortfall has been in the United States, with the gap versus our expectations in the prior year really being focused on technology clients and technology-related projects. We did flag earlier this year that we'd seen some slowdown in spending from technology clients on marketing, but this accelerated in the second quarter and perhaps took us maybe a little bit by surprise. The reasons differ by clients, and actually not all clients are down, but the general trend is one of, I think, cost control, a focus on margins after a significant slowdown in their own rapid rate of growth, and perhaps a different stage of the innovation cycle. As others have mentioned, we've also seen delays in decision-making on some technology-related projects, primarily in our creative agency, that is, Wunderman Thompson, VML Y&R, and AKQA. which saw work being pushed out and lower revenue in technology consulting and development parts of these companies. In this context, it's worth reminding ourselves that our creative agencies have a broad service offer and an increasing amount of their work comes from outside of the traditional agency remit in areas such as marketing technology, e-commerce, data consulting, and other technology-related services. Together, this meant that our revenues in North America declined by 4.1% in Q2, having grown in Q1. There's some other minor elements impacting this, and some weakness in the telco sector, linked to technology delays on a client loss, and also a client loss in the retail sector. But the primary explanation is the reduction of technology in telco spend. If you look at it overall, it had around a 1.9% impact on WPP's revenues in Q2, but obviously a significantly bigger impact if you look at it just in the United States. Now, it's fair to say that we do see our technology clients as important long-term partners and drivers of our growth. It's not the case, as I mentioned, that revenues in all of them have declined, and we're not going to call them out one by one, but we are confident that our relationships are in a good place. This doesn't reflect the loss of assignments, but we don't see any reason why their spend should not recover in the future. Our clients intersect some of the world's largest companies by market capitalization. They're growing and investing in exciting new areas. We do believe that they need to put significant investments behind their brand and into their customer relationships in the future. So with those background, at the same time, we have continued to strengthen our offer to clients and to invest in the future. We had a very strong performance at Cannes Lions, winning five Grand Prix and a total of 165 Lions. Mindshare were named Media Agency of the Year. As importantly, the EFI Awards, which recognize effectiveness in marketing, WPP was named the most effective communications company in the world, with Ogilvy leading as well. There was a little talk in our industry of partnerships around AI. We're doing an increasing amount of work in this area. Every week, I see strong examples of work we're doing for clients, and we'll share some of that later on in the presentation. We've also made a number of acquisitions. I'd like to highlight two, particularly in the area of influence and marketing, GOAT, and obviously. So turning to our profitability, given our revenue performance, we saw disciplined cost control. That's been important. And as a result, we delivered an operating margin of 11.5%, which is up 1.1% on a like-for-like basis, albeit down 1.1% on last year due to FX effects. Our margin benefit from good control of staff costs was achieved despite higher IT costs, from further investment in modernizing our platforms and higher severance costs. Taking that all together for the full year, we considered our guidance, as you can imagine, very carefully and have decided to revise it to 1.5% to 3% the year overall, while holding our margin guidance at around 15% for the year 22 exchange rates. I'm sure we'll get into a discussion of our guidance in the Q&A, but it's worth saying that some of the reductions due to the softness that we saw in Q2, we've really taken three factors into account. First, I think we're being rightly cautious about the pattern of spending by technology clients and on technology projects in the second half. Secondly, we have seen continued growth at a point of actual acceleration in the rest of the world, and the issues we've seen have been largely concentrated in the United States. But it's fair to say the economic environment does remain uncertain And while there's some more positive signs in the U.S. regarding the control of inflation, there are also issues around consumer spending as COVID savings get spent. And then the third area that we are aware that comparisons in the second half of the year are somewhat easier in the first half of the year. So taking these sort of pluses and minuses together, we think a range of 1.5% to 3%, while wider we may like, is probably the right place to guide you at this point in the year. So with that as an introduction, Joanne, why don't you take us through financial performance?

So thank you, Mark, and good morning, everyone. So let me take you through the financial results for the first half of 2023. And I'll start on slide six. First half revenue left past three costs was up 5.5% on a reported basis and 2% on a life-for-life basis. A reported growth includes a 2.6 percentage point tailwind from FX, due to sterling weakness, and a 0.9 percentage point contribution from M&A. As Mark mentioned, this is softer like-for-like growth than we had anticipated, impacted primarily by a slowdown in spending at our technology clients in the U.S. and delays in technology-related projects. Turning to the headline income statement on slide 7, overall revenue less pass-through costs was £5.8 billion, an increase of 5.5% year-on-year. with headline operating profit of £666 million, up 4.3% year-on-year. This resulted in reported operating profit margin of 11.5%, down 10 basis points year-on-year. We have seen an adverse FX impact on margin of 20 basis points as a result of the recent strengthening of sterling. On a constant currency basis, our margin improved 10 basis points year-on-year, reflecting improved staff and other costs, offset by planned higher IT investment and higher severance costs. Moving down the P&L, a share of prelims income from associates excludes any contribution from Cantor in 2023 under IAS 28, due to its nil carrying value on our balance sheet. Net finance costs increased year-on-year due to higher levels of debt and lower investment income as a result of a disposal in 2022, and that was partially offset by higher interest income. reflecting the tax rate of 27% for the half and non-controlling interest of £37 million, the profit attributable to shareholders is £361 million, resulting in a headline diluted EPS of 33.1 pence, which is broadly flat year-in-year. Moving to slide 8 and the reconciliation between our headline and reported profit. As well as the usual amortisation and impairment of intangibles, Our headline operating profit of 666 million is adjusted for a goodwill impairment totalling 53 million pounds, which relates to two of our smaller businesses within specialist agencies. In the half, we incurred restructuring and IT-related transformation costs of 54 million pounds and ERP costs of 24 million pounds, consistent with our full-year guidance of 180 million pounds. As indicated at prelims, we've conducted a review of our property portfolio And as a result, we are consolidating our office space in the US and a small number of other markets. The full year 2023 impairment costs related to this review are primarily non-cash and are expected to be 220 million pounds with 180 million pounds in the first half. The expected cash impact of 20 million pounds will be incurred as leases expire. The above together with some smaller items results in an overall adjustment of 360 million pounds and a reported operating profit of 306 million pounds. Moving on to slide nine, our global integrated agencies grew 2.2% on a like-for-like basis. Group M, our media planning and buying business, grew 6.1% with consistent performance across Q1 and Q2. This was offset by a weaker performance from our integrated creative agencies, which saw an overall decline of 0.8% in the half, with growth in Q1 being more than offset by a decline in Q2. Group M benefited from growth across all regions, and we saw the wrap-up of some good assignment wins, including Discovery in the US, Flutter in the UK, Amaruti, Suzuki, and Racket in India. We also saw continued strong growth in programmatic and connected TV advertising, driving double-digit growth in Group M Nexus. Digital is now 49% of Group M Billions, up from 48% in full year 2022. Across our integrated creative agencies, Ogilvy grew well, supported by recent new business wins, including Verizon and SC Johnson. Holdworth, our creative production agency, also enjoyed strong growth and expanded its collaboration with other WPP agencies. Our other global integrated agencies, Wunderman Thompson, BML Y&R, and AKQA Group, were adversely impacted in the first half by reduced spend across tech sector clients, predominantly in the U.S. longer lead times on technology-related projects, and expected client losses in the U.S. retail sector. For the global integrated agencies as a whole, headline operating profit was 540 million pounds, up 6.6%, and the margin was broadly flat year-in-year at 11.3%. Moving on now to public relations on slide 10, where we see continued demand for strategic communications, with like-for-like sales up 2.1% overall. FGS Global, our leading strategic advisory and communications consultancy, grew high single digits. KKR completed their minority investment in FGS Global last month, becoming a 29% shareholder in a transaction which valued the business at over $1.4 billion. H&K also continued to grow, while BCW saw a small decline in the first half. Headline operating profit of £88 million represented a margin of 15% and was slightly down year-on-year. And now turning to specialist agencies on page 11, revenue left past due costs was up 0.2% on a life-for-life basis. CMI, our US specialist healthcare media agency, delivered strong double-digit growth and Lander & Fitch saw an acceleration of growth. The performance of the longer tail of smaller agencies in this segment was impacted by tougher comps and clients delaying projects. operating margin of 8.6% was 2.8 percentage points lower year-on-year, primarily reflecting the runoff of a COVID-19-related contract in Germany. Turning now to trends across our key client sectors in slide 12, we delivered strong growth in consumer packaged goods, driven by our work with the Coca-Cola company, and we also saw good growth in the healthcare and pharma, financial services, and travel and leisure sectors. Against that, we saw declines in retail as expected, given the loss of a couple of clients in the U.S., one competitive and the other related to supermarket consolidation. Less anticipated was the reduction in spend from clients in the tech and digital services sector, which was down almost 5%, with most of the decline coming in Q2. In terms of our performance by market on slide 13, the U.S., our largest market, saw a decline in net sales of 1.2% in the half, with a 4.5% decline in Q2. This is primarily driven by reduced spend from technology clients and known losses in the retail sector, together with delays in technology-related project spend, which primarily impacted our integrated creative agencies. Excluding the US, we saw good growth in the first half and an acceleration of growth in Q2. The UK continued to show strong performance, with 8.2% growth in the half and faster growth in the second quarter, with particularly good performance in CPG and healthcare clients, and across our media business, which grew double-digit. Germany grew by 5.4% in the half, with strong performance in travel and leisure boosting our media business. And in China, we saw a 4% decline in the first half, with growth recovering in Q2 to 4.8%, albeit slightly slower than we anticipated. We expect China's growth to accelerate in the second half, reflecting easier comps and new business wins, including Estee Lauder. Finally, India grew 0.8% in H1, with a tough comp of 37% growth last year. Like-for-like performance improved in Q2 to 2.5%, driven by CPG clients and media wins, and we expect a further acceleration in the second half, reflecting softer comps and recent new business. As mentioned, first half operating margin reduced 10 basis points to 11.5%. Our headcount-related actions drove a 30 basis points improvement to margin. Our average headcount for the period was slightly lower year-on-year, with freelancers over 20% lower, improving our overall mix. These savings were in part offset by higher severance payments as we moved to adjust our cost base in response to a more cautious client spending environment. Personal costs were higher, driven by more in-person client meetings, increasing travel spend. Additional G&I savings came from operating efficiencies, in part relating to our transformation programme, and establishment costs fell as more of our people moved into campuses. IT costs rose as we previously flagged, reflecting investment in our IT infrastructure, cyber capability, and our move to the cloud, partly offset by offshoring savings. And finally, we saw an FX headwind of 20 basis points. Turning now to our transformation programme on slide 15, overall transformation savings are on track to deliver at least 450 million pounds of annualized savings in 2023 versus the 2019 base by the end of this year. and we remain on track to achieve the targeted £600 million by 2025. We are seeing further efficiency improvements driven primarily from a consolidation of our office footprint. As mentioned, we continue to right-size our properties and we'll see further savings from actions taken this year to consolidate our offices in the US and elsewhere. In procurement, we are starting to see benefits from our category-driven model, which is helping to consolidate our supplier base and better leverage our global scale. The second area of savings focuses on improving our operating model from simplifying our ways of working. And the final area is from our functional spend, including shared services. In addition to the IT offshoring that I referenced, we continue to make progress with our ERP consolidation. The economy is now rolled out in 17 Latin American and APAC markets, and we continue to deploy Workday in North America. Moving to slide 16, and cash generation and uses over the last 12 months. In June last year, our net debt was just over £3 billion, and since then we generated £2.1 billion of operating cash, and saw a benefit from trade working capital of £165 million, with much of that coming through in the quarter just gone. Our non-trade working capital was an outflow of £316 million, with the largest drivers being landlord incentives relating to our campus programme, sales and other taxes, and bonus accruals. Interest lease payments and corporate tax outflows were as normal and CapEx was 210 million pounds with investment primarily in our tech capability and campuses. Total cash returned shareholders was 584 million pounds in the form of dividends and share purchases and we saw acquisitions and disposals of a net 433 million pounds. Other movements primarily include the impact of FX on our operating cash flows and earn outs. Together these increased our net debt by around 300 million pounds and our average adjusted net debt to EBITDA ratio of 1.68 times. I'm now turning to a reminder of our capital allocation policy on page 17. Our first priority is organic investment to support growth, which includes investment in Choreograph, our data company, and WPP Open, our AI-powered agency operating system, as well as our IT infrastructure and campuses. Our dividend policy targets a payout of 40% BPS, and we've declared an interim dividend of 15 pence. We will also invest in acquisitions in attractive growth areas, which accelerate our capabilities, with recent examples being in influencer marketing, PR, and branding. And finally, we will seek to return any excess capital to shareholders. With our leverage ratio currently within our target range, we will limit the buyback of shares to cover the dilutive impact of our employee share programme, which will be around 37 million pounds in the first half. And finally, for me, just to dig you through the guidance for 2023 in slide 18, as Mark has already said, we expect like-for-like revenue-less pass-through costs growth of 1.5% to 3% for the full year. This compares to previous guidance of 3% to 5% growth for the year. Our expected M&A contribution remains at 0.5% to 1%. and we now expect a two percentage point headwind to net sales from FX over the full year. Previously, that was a 1% tailwind. FX is also expected to have an adverse impact of 25 basis points on the full year margin based on 31st of July rates. Guidance for headline income from associates of circa 40 million is unchanged, with no contribution from Cantar included in that figure. Headline tax rate of 27% is also unchanged, and we now expect CAPEX to be 250 million pounds down from previous guidance of 300 million pounds. Restructuring costs including property impairments are now expected to be around 400 million pounds with restructuring and transformation related spend of 180 million as previously guided and approximately 220 million pounds of costs relating to the impairment of right of use property assets of which 200 million is non-cash. Trade working capital is expected to remain flat, with a non-trade working capital outflow of approximately £150 million, consistent with previous guidance. And finally, in net debt, we expect our average-to-average ratio to be within our target range of 1.5 to 1.75 times the forecast net debt at the year end, expected to be £2.5 billion, consistent with the year end 2022. So thank you, and I will now hand you back to Mark to update you on our strategic progress.

Thanks very much, Joanne. So turning to our strategic progress, I wanted to update you on what we're seeing in the market, what we're hearing from our clients, and also share some more progress on our investments in AI. So on page 20, it's clear that our clients are facing an ever more complex environment. Leave aside the macro uncertainty and the need to spend behind their brands to support price increases driven by inflation, the marketing environment just continues to pose more opportunities and challenges, to name just three. First, there are many new ways to reach consumers, from Netflix taking advertising to Uber also building an advertising business. These present new opportunities to advertise, but also more fragmentation and complexity for clients. There's also a more difficult political environment, where positions taken a year ago on social issues that may have felt right are now coming under question. And thirdly, there's the whole topic of AI and how that may impact marketing and where clients need to invest. Faced with this, on slide 21, we highlight what we see as our clients' priorities, and let's take each one of these five priorities in turn. First, on slide 22, it is evident that clients continue to invest in brands. Whether you look at the GroupM advertising spend forecast or the recent Citi CMO survey, you can see that advertising expenditure, paid media, is continue to hold up well. We're seeing this in Group M, where we achieved 6.1% growth in both the first and second quarters. And as we've covered, we've seen some softness in Q2 in technology clients and technology-related projects. We don't see this as a broader pullback because clients understand the importance of supporting their brands. And on slide 23, we continue to do well in new business, winning assignments from many of the world's leading companies and brand owners. In the first half, these included new assignments from existing clients such as Ford, new clients such as EasyJet where we won the European media, and Maruti Suzuki, India's second largest advertiser, now takes us to work with, I believe, 48 of India's top 50 advertisers and marketers. The second product to highlight on slide 24 is creativity and effectiveness, which both remain probably our client's number one priority. CanLions, WPP did very well, as I mentioned, winning five Grand Prix and 165 Lions in total, with Mindshare being named Media Network of the Year. But the other half of marketing is effectiveness. If you do great creative work for clients, it will be reflected in the effectiveness of the work and results that clients see. And here we also did well with WPP being recognized as the most effective communications company globally, and Ogilvy taking Network of the Year at the most recent EFI Awards. Thirdly, on slide 25, in the face of this complexity and the need for big creative ideas to deliver effective marketing, clients are looking at their marketing partnerships and seeking simplicity transformation. Perhaps the most ambitious example around the world is our relationship with the Coca-Cola Company, which we believe is the first of its kind model, and in our view, not the last. At its heart is creative excellence, powerful creative platforms, that leverage one data and technology platform, but also provide local intimacy with the benefits of global scale. These all focus on driving revenue growth and consumption growth, the top-line growth for the client. But at the same time, there are two important principles. The first is to deliver efficiency. The company consolidated from really 7,000 agencies to one global marketing partner. And at the heart of it is also transformation, where a simple model allows the Coca-Cola company to transform how it's marketing, while it's marketing, not as a separate exercise, but part of how it approaches the future. But we're now seeing, nearly two years into this partnership, it's delivering great results, which you can see in this quote, but more importantly, in their financial results. The fourth priority is technology and data on slide 26, as these two elements really underpin modern marketing. Here you've seen yesterday our partnership with Spotify as well as other recent partnerships with leading data and technology partnerships. The Spotify partnership gives us access to their rich insights into music, consumption and consumer trends. It also allows us to access their audiences without the use of cookies and to build innovative new products and creative platforms with them. It's a very broad and very deep partnership with one of the most important new or fast-growing platforms. That takes us to slide 27, and last but not least, the topic of AI. We thought it would be helpful to look at some data on the impact of AI on marketing. There isn't much, but this data taken from research by Citi, we think it's the first of its kind. We do think it bears some consideration given the debates about the impact of AI on marketing and on the agency business. And what this data shows is is that whether it's overall advertising spend or marketing intentions or the amounts that CMOs believe they'll spend on agency services, they don't see these amounts going down. In fact, 85% expect the amount they spend on advertising to go up significantly more or somewhat more. And 78% expect the same to be true of agency services. And only a tiny number of clients expect their spend to be down somewhat less or significantly less. Now, it's early days, but I do believe that this survey points to the understanding by CMOs that a lot of what we use AI for is to deal with complexity in their business, to help them overcome this complexity and produce the volume of assets they need more cost-effectively, to target their media and marketing more effectively, and to power their creative ideas. This investment in AI will allow them to succeed in this new environment, not allow them to significantly reduce their spend. And this really tallies with our experience to date with technology where the parts of our business that are most impacted by it, media production, have for some time been the fastest growing parts of the business. On slide 28, we do have broad capabilities across WPP. If you look at what we're doing with clients today, creatively, we've been using AI to power our creative work for some time. For example, the next Rembrandt from Wunderman Thompson for ING was back in 2016, so some seven years ago. In production, we'll talk later about our unique partnership with NVIDIA, but this really highlights opportunities with AI to create more personalized and relevant work, also much more cost-effectively. And lastly, in media, as you'd expect, given the amounts that we're investing, AI is an extremely important lever driving up returns in a much more complex digital environment. So on page 29, rather than announcements, let's talk about some of the work that we're doing today for our clients. The work really spans three areas of our business. First, supercharging our creative work. Secondly, scaling personalization. And thirdly, maximizing performance and taking each of these in turn. We've shared many examples with you or a few examples over the last few calls of how we're using AI to power our work from the Nike work featuring Serena Williams to the Nestle work for Lali Pierre. This time, we'll share some work for Virgin Cruises, starring J-Lo. You can see how AI brings this idea to light. So please, would you play the film?